Friday, 20 February 2015

Buried
beneath the mountain of verbiage and breathless news reports about the Greek debt
negotiations lies a little-noticed role reversal. While the new Greek
government Syriza adopts the dramatic plumage, media savvy and rhetoric of ‘revolutionaries’ they are, in fact,
staunchly defending the Greek status quo – the very status quo that brought
Greece to its knees. The usually media-shy, grey and drab Eurocrats in Brussels
would shiver at the comparison, but they have become the real revolutionaries
who want to change Greece and bring it kicking and screaming into the 21st
century.

The Greek state, with its bountiful
patronage and rigid control, has dominated the Greek economy and protected
politically loyal interests for generations. Every party in power has used the
state coffers to reward voters with jobs in government or in state-owned
enterprises regardless of aptitude or knowledge of the job at hand. The
combination of hapless, inefficient state economic enterprises and bloated bureaucracy
whose main goal was to strangle at birth any innovation that might reduce its
numbers has slowly but surely deprived the Greek economy of the vitality and
oxygen needed for real growth. Who in his right mind was going to spend the
energy required to fight through the swamp of bureaucracy and closed professions to
start something new that just might offer a lower priced, better service or
product to all consumers? Far better to stuff your idiot cousin into
well-protected state job.

Is he the revolutionary ...

This is what Syriza wants to defend
at all costs. It is, after all, the source of the party’s political power. And
this condition is exactly what the bureaucrats in Brussels want to change.
Syriza loves to play on the image of the hard-hearted Germans insisting that
impoverished Greeks tighten their already tightened belts a few more notches.
Greeks respond ‘What belt? I sold that
long ago.’

Even
brilliant economists like Paul Krugman weigh in against the follies of relying
on austerity to bring a country out of depression. It is not every day that I take
issue with a Nobel Prize-winning economist, but Krugman may be only half right
in this case. I agree completely that austerity by itself accomplishes nothing
but misery. How can any country, or company, for that matter prosper on a diet of nothing more than the economic equivalent of kale and
tofu?

It
is the flip side of the austerity coin that has been obscured in all the
concern for the long-suffering Greek people. So far, Syriza and its vocal
supporters have said very little about the vital structural reforms required to
get Greece off the welfare rolls. What about opening up the economy to
newcomers and, God forbid, foreigners? What about amending the bureaucracy to
encourage instead of discouraging enterprise? We know that Syriza is firmly
against selling or even leasing state assets to raise funds that could be used
in much-needed social welfare programs. But why, precisely? Do the party
leaders really believe that the state can run things like the railroad, ports
or power corporations more efficiently than private owners? The real tragedy is
that without these long-overdue structural reforms the pain of reduced spending
over the last few years will be wasted. Greece will remain mired in a welfare
trap, unable to claw itself out of debt and unable to grow.

Or is he the real revolutionary?

The
revolutionaries in Brussels want to change the story line. They are well aware
of the desperate state of many Greeks, but they would like to help Greece grow
out of the welfare trap rather than remain on the EU’s life-support system. An
obvious deal is on the table. Greece’s debt conditions are eased in return for
real movement on the economic reforms. Will Syriza pick up this deal? Or will
it continue to play the role of the defiant revolutionary defending the
barricades with cries of ‘national
sovereigntyover all else’? One
wonders if Greece’s rulers have ever explained that the price of joining the EU and then the Euro was a loss of total sovereignty. The club has
rules that one is supposed to obey. One
didn’t hear much about a ‘loss of
sovereignty’ when EU funds were flowing in to improve the country’s antiquated
physical infrastructure. But now when the club secretary reminds members that
the club is joint enterprise with certain obligations we hear cries of anguish
from many Greek politicians.

If
there is no agreement in Brussels in the next couple of days Syriza could
possibly elect to hold a referendum on the Euro. It could ask the Greek people to
decide if they want to stay in the Euro even with the ‘odious’ conditions imposed by heartless Germans - or do they want to
return to the ‘proud and sovereign’
drachma regardless of the economic pain that might cause. Such a step could
give Syriza political cover regardless of the outcome. In any case, we won’t
have long to wait for the end of this melodrama.

Thursday, 5 February 2015

Nothing
better illustrates the ‘profoundly unserious’ nature of Syriza’s plan to revive the Greek economy than its
position on the sale of state assets. Syriza’s new ministers have gone out of
their way to condemn the practice and say they have absolutely no intention of
pursuing any more privatizations. So much for the claim of helping the long-suffering people of Greece. If the party was genuinely interested in easing this suffering it would relax its rigid ideology and use these state assets to generate the necessary funds.

The Wall Street Journal ran an interesting analysis of the Greek debt situation in the 20 February edition. Stephen Fidler points out clearly that Greece has the resources to tackle its debt, but the government chooses not to. This analysis would seem to be supported by comments from two leading government officials regarding the controversial privatization program.

Finance Minister Yanis Varoufakis opined in one of his carefully-calculated sound-bites that “it is not very
clever to sell off the family jewels in the middle of deflationary crisis. It
is wiser to develop state property and increase its value using smart financial
resources to strengthen our economy.”

Panayiotis Lafazanis, leader of the
hard-left faction of Syriza, added that the Public Power Corporation “will
return to the state as a state-run company which will operate as a driver of
economic growth.” Are they kidding??!!

These comments demonstrate clearly that neither of these people has ever been involved in selling or running
anything, and has absolutely no idea what they are talking about. First, when
is a better time to sell assets than when you need money? The government can
set the minimum price it will accept and work to attract bids. Because assets
like the Public Power Corporation, the Port of Piraeus, and the railway are
potentially valuable for the right buyer the bids could easily exceed the
state’s minimum price. The cash received by the state would come in very handy to
meet some of the legitimate social needs in the country. This much is elementary, not even Economics 101.

Fashion statement or finance minister?

Second, the idea of the Greek state
‘developing’ these assets or having
state-run companies becoming “a driver of
the economy” is ludicrous. Over the past several decades the Greek state,
regardless of the party in power, has demonstrated convincingly that it cannot
run a car wash let alone something as sophisticated as a major port or energy
company. Just look at the sorry record. Olympic was a decent airline until it
was nationalized, starved of investment, over-staffed with political patronage,
and ultimately went bust. The airline was well known for people getting paid
and never bothering to show up for work. The railroad could be a very valuable asset by connecting with a potentially
efficient Port of Piraeus and offering a much quicker way to the heart of
Europe than taking a ship all the way through the Straights of Gibraltar and up
to Rotterdam or Hamburg. But, under state ownership the railroad never even began to
reach its potential. All you have to do now is contrast the part of Piraeus
Port owned by the Chinese company Cosco with the state-owned section to see the
difference. One bustles with activity and productivity while the other stagnates

Furthermore,
all these state assets require millions of Euros of investment to make them
productive and efficient. Under state ownership where is that money going to
come from? The Treasury is already empty, and there will be intense pressure to
spend what little money there is on re-hiring people or boosting pensions
rather than buying things like a new crane for the Port of Piraeus.

One would hope that Syriza would at
least be honest with the Greek people. One reality they do not touch upon is
that the party is beholden to powerful unions. And these unions have always
been opposed to privatization. Such a move away from state-ownership could
seriously weaken the unions’ influence. In addition, continuing state ownership
guarantees Syriza’s grip on the levers of economic power in Greece. Friends can
easily be rewarded while enemies can be left outside the charmed circle. One
gets the distinct impression that the last thing Syriza wants is strong
economic growth led by a private sector that it cannot control.

Another way to generate some cash
for much needed social programs would be to cut the bloated defence budget
which is still one of the highest in NATO as a percent of GDP. Surely, if
Syriza were seriously interested in helping the people of Greece it could
divert some this money into much needed social spending.

But what do we get instead of serious
proposals? Grandstanding helicopter flights by the new minister of defence over
disputed islets close to Turkey where he dramatically drops a wreath for all
the cameras to witness. Why? What on earth was he trying to do other than
provoke another problem that Greece does not need? Despite deeply entrenched
Greeks fears to the contrary, Turkey is not about to lunge across the border
and grab some territory

Greece does indeed have the ability
to help itself. But the government has
to get serious about generating sustainable income rather than simply bleating
about Europe’s ‘obligation’ to reduce
the country’s debt. If Syriza really wants to prove its 'anti-establishment' tendencies it could actually do something to help the people of Greece rather than rely on trivialities of costume design and grand, theatrical -- but ultimately empty -- gestures

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.